John B. Menzer – Illustration – Statistical Data Included – Company Profile

Stephen Barr

Planning to win has produced outstanding financial results at Wal-Mart.

JOHN B. MENZER REMEMBERS THE NEWSPAPER headline fondly–in a perverse sort of way. He had been the CFO of Wal-Mart Stores Inc. for four months when, in January 1996, the world’s largest retailer announced that its next quarter’s earnings would be lower for the first time in its 25 years as a public company. The Wall Street Journal trumpeted the news in a page-one story that declared that the longtime Wall Street darling had stalled at $100 billion in sales in a crowded retail market and that, as the headline put it, the “end of an era” had arrived.

“The whole theme was that Wal-Mart had peaked and had nowhere to go,” the 48-year-old Menzer recalls. “We weren’t going to let that happen, and we used the Journal story as part of the calling to make changes and take this company to the next level.”

The key to doing that, Menzer and his colleagues determined, was to develop a planning process that would enable the company to understand where it needed to go, how to get there, and what key drivers it should focus on along the way. “We weren’t too big on planning or budgeting, because we figured, why tinker with success?” he says. “Planning amounted to the tactical efforts that went on in the divisions or at the store level. No one took a broader strategic view.”

But the effort was worth it. Today, Wal-Mart has blown past its 1996 sales mark to a record $138 billion in revenues last year, a 17 percent increase, while earnings were up 26 percent, to $4.4 billion. In favor again among investors, the Bentonville, Arkansas-based company was the top performer among the Dow Jones 30 Industrials in 1998, with a 107 percent total shareholder return.

“John and his financial team developed a high-performance strategic- planning process for value creation,” says Wal-Mart CEO David D. Glass, a 24-year Wal-Mart veteran and Sam Walton protege. “This process helped our associates focus on the key drivers of their business. The great execution of these strategies by our associates has helped produce outstanding financial results.”

As it turns out, the effort was also worth it for Menzer, who was president of Ben Franklin Stores before joining Wal-Mart as its CFO. Not only did he garner a 1999 CFO Excellence Award in the Planning Process/Resource Allocation category, but in June, he also was promoted to president and CEO of the company’s fast-growing international division.

Targeting Wallet Share

Planning may not have been a major part of Wal-Mart’s proud culture, but it wasn’t hard to convince top management that it was imperative. In the wake of the 1996 earnings disappointment, Menzer and the finance team analyzed Wal-Mart’s declining trends in comp-store sales growth and in gross margins and profit margins, and prepared a model of what performance would look like over five years if those trends continued. In short, the outlook was unacceptable. And the senior executive group quickly welcomed the proposal to develop a strategic-planning process.

As Menzer saw it, Wal-Mart had no problem attracting customers into its stores, but it needed to target their “wallet share,” which is a fancy way of saying they should spend more once they’re there. Better planning could help that happen, but only if it provided a road map for the operating divisions to use in determining the key initiatives they needed to focus on to rev up growth.

Menzer and the company planning committee built the road map around seven strategic concepts, ranging from the customer value proposition to competitive factors and acquisition opportunities. Around each, Menzer assembled cross-functional teams with members from every division, to outline templates for use as part of divisional strategic-planning exercises. In a company that resists top-down dictates, the template approach ensured buy-in for building five-year plans.

“We didn’t have a corporate planning team that told each division what its plan should look like,” Menzer explains. Similarly, the annual operating plan is, in turn, largely derived from the first year of the five-year plan, which helps shift the focus in budgeting toward strategic goals and away from negotiating numbers.

“What intrigues me about John’s approach is that he has gone well beyond what most people consider planning to what is a complete value management system to drive results,” says Lawrence Serven, a principal of Buttonwood Group, a Stamford, Connecticut-based consulting firm. For example, says Serven, the integration of strategic and operational planning and the five-year and one-year plans are practices that sound intuitive, but are rarely accomplished.

A Simple Focus

Although the new planning process has influenced every aspect of operations, Wal-Mart executives are convinced that it has been most important in strengthening the focus on asset management and on innovative merchandising concepts.

Between 1990 and 1996, for example, Wal-Mart had recorded a declining return on assets, as inventories grew at the same rate as sales. Widely distributing an analysis showing that companies that improve their ROA see their stock price improve, Menzer was able to integrate the idea of better inventory and supply-chain management into planning. “This became the key metric to see if we were doing planning right,” he says. “The impact on ROA was our litmus test, because we believe driving up that number would drive up our stock price.”

In choosing ROA, says Serven, “John wanted a measure that Wal-Mart’s one million associates worldwide would understand. This criterion eliminated EVA and CFROI [cash flow return on investment]. He wanted something that everybody could embrace and commit to, which separates Wal-Mart from scores of other companies.”

The effect has been dramatic. The Sam’s Club division, a $23 billion (in revenues) wholesale chain, has reduced the number of items sold per store from 4,500 to an average of 3,700. And companywide over the past three years, while sales have increased 47 percent, inventories have grown only 7 percent.

Meanwhile, stores in Wal-Mart’s domestic division have used the planning process to develop store-specific merchandising strategies. Previously, Wal-Mart had treated every store the same, whether it was in California or New York or anywhere in between. As part of the planning effort, however, a template was developed to help divisions understand their customers better and tailor their merchandising accordingly. As a result, stores that are 10 miles away from each other may be 20 percent different in their merchandise.

Foundation for the Future

As the strategies were put in place, Menzer began to spell out the effects of the new planning process to analysts and investors. And it didn’t take long for Wall Street to accept his promise of a return to double-digit revenue growth and profitability in excess of 15 percent.

In fact, this year the stock hit a record high of $51 on April 8, up from a low of $9.50 a share when Wal-Mart announced its disappointing results in January 1996. And on August 10, Wal-Mart beat the consensus earnings forecast by three cents. Even in the current period of concern about consumer confidence, analysts say they are convinced Wal-Mart can grow just as well as in boom times.

“What they’ve done is taken a much longer view of how they conduct their business and gear up for future growth,” says Alan Mak, a retailing analyst at Argus Research, in New York. “No one is saying Wal-Mart’s best days are behind it. They’re saying, Where will Wal-Mart grow next?”

For the answer, look to the international division, which Menzer is now heading. Wal-Mart will open 75 to 80 retail stores abroad this year, and in the next three to five years, it wants one-third of its sales and profit growth to come from that division.

Although the segment’s operating profit slumped 10 percent in the most recent quarter, David Glass is certain that Menzer is right for the job. “John now has the responsibility of developing our international operations,” says the Wal-Mart CEO. “And because of the long lead times [on profitable growth] and the difficulties of doing business in other cultures, a guy who is an outstanding strategic planner fits that role well.”


During the past 3 years, combined inventories

have grown 7% while sales have increased 47%

Net Inventory in $ Billions

FY95 8.5

FY96 9.9

FY97 8.6

FY98 7.7

FY99 7.3

Source: Wal-Mart Stores Inc.


Menzer’s belief in the strong correlation between

ROA and share price has played out nicely.

Return On Assets

FY95 9.0

FY96 7.8

FY97 7.9

FY98 8.5

FY99 9.8

Source: Wal-Mart Stores Inc.

COPYRIGHT 1999 CFO Publishing Corp.

COPYRIGHT 2000 Gale Group

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